Not surprising, Amazon Web Services dominated another quarter -- and all of 2016. However, the cloud giant finally has real competition.
On the Microsoft earnings call, CEO Satya Nadella expressed the understatement of the century, acknowledging that AWS "is going to be a credible competitor." AWS is much more than that: It's redefining enterprise IT forever, with everyone else having to sprint to catch up to its torrid pace of innovation and price cuts. Interestingly, Microsoft Azure and Google Cloud appear to be doing exactly that.
Sure, in 2016 AWS profits ($3.1 billion) exceeded the highest revenue estimates of its next closest rival, Microsoft Azure, which Bernstein analyst Mark Moerdler rounds out at $3 billion and others peg closer to $1.6 billion. Alphabet, meanwhile, declares that its Google Cloud Platform is on "a terrific upswing," but all signs point to annual revenue well below that of Azure.
Even so, among these two runners-up, we're talking about billions not millions, even as other would-be contenders crater. The market is consolidating around the big three cloud vendors, and it may be too late to add a fourth.
Catching up with AWS
Though both Microsoft and Google have yet to break out their respective cloud revenue numbers (they're not required to until it represents 5 percent of their overall company revenue), both reported big increases for 2016. Microsoft's Azure revenue grew 95 percent in constant currency, and while Google didn't report revenue or growth numbers, it suggested it had "significant momentum" in the year, a claim made more believable by deals like Snap's ($2 billion over five years for Google Cloud services).
The problem for Microsoft and Google is that AWS isn't slowing down. If anything, it's accelerating. As noted in the company's earnings call:
[AWS] is now ... running at a $14 billion run rate…. [W]e had seven price cuts in Q4. [And] that's going to be constant in this business. We've been pretty clear that this business is all about creating new functionality for customers, giving price cuts and then working on the operating efficiencies. So, [we're] very pleased with Q4 and the pace of the business. The new services and features last year were over 1,000 versus 700 or so ... in 2015.
Catch that? AWS made lots of money by charging less and less for more and more at ever greater operational efficiency. That's tough to beat.
Yet there's hope for rival clouds -- two of them, anyway.
Then there were three
For years AWS stood alone in public cloud computing services. Then Microsoft emerged as a significant force. More recently, Google finally seems to be a real, if still distant, threat, chalking up big deals and generally distinguishing itself as a good place to run apps that depend on its data, analytics, and machine learning smarts.
According to new Synergy research, though, Microsoft Azure and Google Cloud are not exactly winning at AWS's expense. Instead, they're scorching the earth for everyone else:
Oracle, perhaps most vocal of the also-rans, has been struggling to define a winning strategy. Changing how it counts CPUs/cores running on AWS to effectively double the cost of running Oracle on AWS probably isn't that strategy. In fact, David Linthicum calls it "market suicide."
Suicidal or not, customers simply aren't buying it. They are, however, moving databases and applications to AWS to the tune of 18,000 databases migrated in 2016 from Oracle (and others).
This seems to leave us with a Big Three in cloud computing. AWS will set the pace but with massive piggy banks and significant value beyond "we're cheap"; Microsoft and Google have a chance of claiming a big chunk of the cloud pie. Others like Oracle could also spend big to win, but no one else seems to have cracked the code on turning developer convenience into hard cash. This is DNA that is not easily hired, grown, or bought.
That really leaves us with AWS, Microsoft Azure, and Google Cloud atop the cloud computing heap, with everyone else increasingly a rounding error. If cloud computing plays out like other markets, these will be our cloud overlords for many years to come.